Economics of Prosumers

Nowadays, there is a dramatic push towards renewable energy in the utility sector. Not only individual governments of various countries, but also corporations, gather together to both discuss the environmental impact of the energy sector and draft new policies to reduce carbon emissions. Conventional power plants that are generating electricity from fossil fuels are slowly being phased out, and at the same time installation of solar PV panels and wind turbines is becoming mainstream (DECC 2014). As a result, there is a dramatic shift in the electricity production spectrum.

The shift in the utility industry and the improvements in technology directly influence a shift in the customer segment. Increasing number of customers that used to purchase energy from utility companies are turning into producers of electricity – “Prosumers”. A prosumer is an individual who consumes and has the capability to produce. With relation to the energy market, a usual prosumer is a household equipped with solar PV panels on the roof (Shandurkova et al. 2012). As a result, individual customers can deliver a value to other parties connected in the grid.

An interesting academic research was conducted in 2015, which investigated economics of small local electricity prosumers with the relation to their costs of generated electricity. In other words, the paper compared costs of energy produced by conventional power plants to the costs of energy generated by pool of prosumers. The costs of energy generation from renewables have a downward trend, with the solar PV technology being matured, and has a direct influence cost (Schleicher-Tappeser 2012).

The paper investigated six different sites of prosumers in the UK. The sites of prosumers were equipped with solar PV panels and wind turbines. Their energy generation capability matched their average consumption. The concept of levelized cost of energy was used. Levelized cost of energy is used to compare costs of energy across different technologies (Kästel & Gilroy-Scott 2015).

Results of the academic paper has shown that in 96% of the total 8900 instances the levelized costs of electricity generated by a pool of prosumers is lower compared to the levelized costs of electricity generated by a conventional power plant. In addition, the feed in tariff (FiT) that is paid to prosumers for every watt-hour of electricity delivered to the grid was not taken into the equation. As a result, the levelized cost of energy generated by pooled prosumers might be even lower (Kästel & Gilroy-Scott 2015).

The results of the reasearch have wide implications on the utility segment not only in the UK. Conventional power plants based on burning fossil fuels face a difficult time to compete in both price of electricity per watt-hour and carbon emissions. However, energy generated from renewable sources has a high volatility compared to a steady flow of energy generated from conventional power plants. As a result, either large power storage sites has to be developed and implemented or conventional power plants would only be used as grid balancing parties.